The faltering French economy, which continues to stall under President
Francois Hollande, has given a boost to anti-EU sentiment across Europe,
writes Liam Halligan

“I wouldn’t hold French shares,” said Nigel Farage with a wink, belying his previous life as a stockbroker. “The country is in real trouble,” the Ukip leader told me at an investment conference in London last week. “As someone who loves France, it gives me no pleasure to say that.”

While Mr Farage casually dishes out advice to sell French stocks, he knows only too well that, for all his admiration of Gallic gastronomy and tabacs, the singular weakness of the French economy, and related political fall-out, is playing into his hands.

France has stalled badly. The eurozone’s second-largest economy has grown by just 0.3 per cent a year on average since 2008 and will register just a 0.4 per cent expansion this year, according to new International Monetary Fund forecasts. Britain, in contrast, is set to reach a buoyant 3.2 per cent growth rate in 2014.

Since President François Hollande entered the Elysée in 2012, France hasn’t managed two successive quarters of economic growth. The former Socialist Party leader’s programme of higher regulation, spending and tax is being widely blamed for this dismal French performance. That’s helping to shift voting intentions rightward in both France and Britain, which can only help Ukip.

Yet something else is happening. For decades, France has been a driving force behind post-war European integration. The country’s political class - and much of the electorate - has typically viewed Le Projet Européen as a thoroughly good thing. More recently, though, French public opinion has begun to turn, as household incomes have been squeezed and the European Union has expanded to the east.

In May, Marine Le Pen’s Front National - which advocates French withdrawal from both the EU and the single currency - won the European elections, attracting 25 per cent of all votes. Across the political spectrum, in fact, French eurosceptics are finding their voice, on the far right and also the left.

Here in the UK, what’s happening in France begs an important question for Ed Miliband, as Mr Farage well knows. If even French voters are actively questioning their country’s place in Europe, can the Labour leader ultimately refuse a much more Europhobe British electorate a referendum on EU membership?

The French political establishment, convinced the status quo is safe, remains outwardly sanguine. “Le Pen is stirring-up discontent on Europe, setting working people against the elite,” says Pascal Boniface, the veteran Director of the Institute of International and Strategic Relations in Paris. “But she’s part of the elite herself and nothing will change. We now have a French debate on Europe but that’s a long way from a decision. There’s very little chance France will quit the EU.”

Younger analysts aren’t so sure. “There’s a new and rather scary antagonism in French politics,” says Bastien Drut, a Paris-based fund-manager in his early thirties. “The far right and far left are railing against European institutions, gaining momentum as the economic crisis continues, taking more and more support from the mainstream. No-one knows where it will end”.

Across the higher echelons of politics, though, it’s business as usual as far as Europe is concerned, with France continuing to pull strings in Brussels with its usual combination elan and cunning. Last week, the European Commission decided not to force Paris to revise its 2015 budget, despite yet another flagrant breach of the eurozone’s deficit rules.

Back in September, Hollande’s government admitted it would fail to cut its fiscal deficit, as promised, to 3.8 per cent of GDP this year, before hitting the eurozone’s 3 per cent ceiling in 2015. The deficit would instead rise to 4.4 per cent, Michel Sapin, the finance minister, announced, before dropping back to 4.3 per cent next year. France now won’t reach the 3 per cent deficit target until 2017 at the earliest.

This announcement, coming on top of a previous two-year grace period granted to Paris, enraged smaller single currency members forced by Brussels to impose severe budget cuts in the name of reducing systemic risks to monetary union. Germany, the eurozone’s paymaster-general, was also exasperated by the display of French intransigence.

Last week’s deal, though, relies not on France making budget cuts beyond the 20 billion euros already planned in 2015, or raising taxes. Paris is instead relying on reimbursed EU contributions, lower future interest payments and vague promises to clamp down on tax evasion to conjure up a few extra billion in projected revenue, so creating a marginally improved deficit forecast.

While a typical eurozone fudge, it was telling that in the run up to last week’s French reprieve, Hollande’s government went out of its way to fire-off some choice anti-EU rhetoric. “It’s we who decide on the budget,” Prime Minister Manuel Valls boomed on prime-time television. “Nothing can lead to France reviewing its budget. We’re a big country and should be respected”.

This confrontational negotiation, even if staged, was far from the usually elegant Paris-Berlin stitch-up, reflecting the pressure France’s centrist politicians now feel to address the Eurosceptic challenge confronting them from both left and right.

Such pressure is definitely growing, building on a suspicion of Europe that’s always been there, if suppressed by a lack of robust public debate.

French voters, for instance, rejected the proposed EU constitution in a 2005 referendum, in part due to fears that East European workers posed a threat to French jobs. While the constitution was abandoned, it was replaced by the Lisbon Treaty, signed into EU law in 2009, which critics say imposes the same federalist agenda under a different name.

Tapping into discontent over Europe, and broader economic insecurities, Le Pen has lately made serious inroads into the French working-class electorate and lower-middle classes too, with the Front National leading the mainstream centre-left and centre-right parties in opinion polls.

Hollande’s approval rating, meanwhile, languishes in the low teens. Le Pen would currently beat the incumbent in a straight run-off for the Presidency - a result that would send political shockwaves across Europe.

Well-connected observers admit that the rising tide of euroscepticism means France needs to modify its relationship with Europe. “For more than half a century, the French have worked to strengthen the EU and now they’re asking whether the effort was worth it,” wrote the economist Jean Pisani-Ferry, in a report entitled “France Ten Years from Now”, commissioned by President Hollande and published earlier this year. “Over the next decade, the EU must revise its founding treaty, or draft a new treaty for the Eurozone,” Mr Pisani continued.

Such an outburst from a high-profile public intellectual - Mr Pisani has worked as a senior advisor to the European Commission, as well as successive French governments - would have been unthinkable until very recently. But now, even the most assured commentators admit a French EU referendum would amount to a genuine contest.

“Among those voting, lots of people are now choosing anti-European parties,” says Mr Boniface. “But if there was a referendum tomorrow, only a third would vote to leave. People are fed up with Europe, but they still want to stay”.

The reason, says Mr Boniface, is that while Brussels “most certainly isn’t loved”, there’s a widespread feeling in France that the EU’s plethora of social regulations shields workers from the harsher side global competition and more liberalized Anglo-Saxon labour laws.

“In the end, the French see Europe as protection against such excesses,” Mr Boniface says. “For us, fear of globalisation will always trump fear of Europe”.

Pascal Lamy agrees. The Former World Trade Organization Director General, who remains highly influential in Paris, and whose new book When France Wakes calls for fundamental changes to the French economic model, nevertheless believes his country will stay in the EU. “There is almost no chance of France voting to leave,” Lamy says. “The only way that would change is if there is another very serious crisis of monetary union - but I don’t think that will happen”.

France largely escaped the 2012 eurozone crisis. While the markets targeted the likes of Greece, Portugal and Italy, sending their sovereign debt yields into orbit and causing massive financial distress, French bonds remained relatively stable. The pledge by European Central Bank boss Mario Draghi to do “whatever it takes”, an implicit promise to buy the bonds of bankrupt eurozone members using ECB money, came just in time for France.

That’s one reason the French political elite continues to deny the need for meaningful budgetary restraint.

Despite that, the benefits of single currency membership - which many in France see as the essence of the European Project and, in turn, vital to French political identity - are now themselves being questioned, not least because France has been locked into a currency that many industrialists see as over-valued.

“Since the introduction of the euro [in 1999], French competitiveness has deteriorated steadily, and the external balance has shifted from positive to negative,” says Mr Pisani. “The current architecture of the euro zone lacks coherence and may become politically unsustainable”.

Some will see these words as a clarion call for the creation of a eurozone banking union, and an even more energetic pursuit of “ever closer union”.

Others will view them as an admission, from the heart of the French establishment, that European integration may have limits. The point is that the question is now on the table.

France will continue to spar with Germany, with Paris pushing for weaker fiscal controls and ever more government spending, just as Berlin urges budgetary caution. The massively bloated French state, though, already a colossal 56 per cent of GDP compared to 45 per cent in the UK, shows little sign of contracting.

Mindful of renewed doubts over the stability of monetary union, French and German ministers last week agreed to put forward “joint proposals on structural reforms” in early December - yet another face-saving move designed to smooth over the fundamental contradictions at the heart of monetary union. Meanwhile, the eurozone stands on the brink of its third recession in just six years.

As we Brits closely watch how the French economy fares over the coming months, so our French cousins will keep watching us - not least in terms of how the UK debate on Europe develops, as we approach the referendum on EU membership promised by Prime Minister David Cameron, as long as the Conservatives are in government, in 2017.

“I doubt many French politicians would cry if Britain does leave the EU,” says Boniface. “We’d quite like you to stay, but we’re not afraid to see you go”.

Lamy views such a response as “stupid”, arguing that any UK exit from the EU would be bad news. “If we’re serious about creating a civilized Europe, then we need the UK,” he says. “If Britain left, it would be a serious drawback”.

The French are “pretty much resigned to Britain leaving Europe one day”, says the social commentator Mathieu Le Fevre. “It is well understood that the UK is a different kind of a place that never wanted to be part of European project anyway,” he says. “The difference is that your eurosceptics, like UKIP, are just weird people. Ours, meanwhile, are fascists”.

Being called “weird” doesn’t bother Nigel Farage, of course. “It really does make me sad that France is suffering,” the Ukip leader told me, sporting an impish grin. “What’s happened there reminds me of Britain during the Winter of Discontent, back in the late 1970s”.

No wonder Farage is smiling. For growing French eurosceptism is emboldening anti-EU parties across Europe, including here in the UK - where the rise of Ukip is likely to put increasing pressure on all mainstream parties eventually to accept an EU referendum.